The United States Supreme Court unanimously held that an entity’s efforts to recover payment of a debt purchased from a third party for its own account is not subject to the Fair Debt Collection Practices Act (the “Act”).  Justice Gorsuch, in his first written opinion as an Associate Justice for the United States Supreme Court, employed a traditional, plain language reading of the statutory text in explaining the decision of the Court.  Despite the favorable nature of this ruling to banks and other entities which purchase debt in the marketplace, the impact of the Court’s decision is softened by the issues to which it did not grant certiorari, specifically whether a party qualifies as a debt collector under the Act if it regularly seeks to collect debts that it purchased for its own account.

In this instance, the petitioner obtained a loan from CitiFinancial Auto to purchase an automobile.  The petitioner defaulted on the loan, and CitiFinancial Auto sold the debt to the respondent.  The respondent sought to collect on the debt for its own financial gain, in which the petitioner alleged that the respondent’s collection practices violated the Act.  The federal district court and Fourth Circuit Court of Appeals each found in favor of the respondent, and ruled that the respondent did not qualify as a “debt collector” under the Act.  The petitioner appealed to the Court, which granted certiorari.

The Court employed a traditional statutory analysis to determine whether the respondent qualified as a “debt collector” under the Act.  “[B]y its plain terms [the Act] seems to focus our attention on third-party collection agents working for a debtor owner—not on a debt owner seeking to collect debts for itself.  Neither does this language appear to suggest that we should care how a debt owner came to be a debt owner ...”  Based on the statutory text, “[a]ll that matters is whether the target of the lawsuit regularly seeks to collect debts for its own account or does so for ‘another.’”  Accordingly, the Court held that the respondent’s collection of debts for its own account were not subject to the Act.

The petitioner attempted to influence the Court’s analysis by focusing on verb tense and the use of past participles, at which point the Court presented a lesson on grammar.  Citing the Cambridge Guide to English Usage, the Court held that the word “owed,” in the context of the Act’s definition of a “debt collector” as anyone who collects debts owed or due another, “describe[s] the present state of a thing.”  Expanding its focus beyond the word “owed” in isolation to the phrase in which it is used, the statutory text describes a current debt.  Further, other provisions of the Act lend credence to the conclusion that “Congress routinely used the word ‘owed’ to refer to present (not past) debt relationships.” 

Finally, the Court declined the petitioner’s invitation to broadly construe the Act to regulate business practices which may not have been in existence at the time that the law was enacted, namely the market for defaulted debt.  The Court opined that “it is never our job to rewrite a constitutionally valid statutory text under the banner of speculation about what Congress might have done had it faced a question that, on everyone’s account, it never faced.”  Acknowledging the reality that new businesses frequently emerge in response to regulation, the Court remarked that “these are matters for Congress ... to resolve.”

The Court’s ruling is significant on a number of levels.  For entities who purchase debt on the secondary market, the decision offers protection from liability under the Act.  The relief, however, may prove temporary, because the Court did not address whether a party who regularly purchases the debt of another for its own account qualifies as a “debt collector” under the Act.  For consumers, the decision poses another obstacle to recovery, while encouraging them to utilize the tools of discovery to investigate whether the party collecting the debt purchased from a third party regularly engages in such activity.  For district court judges and practitioners, the decision resolves a split in authority amongst the federal circuits.  The questions left unanswered by the Court, however, open the door to further litigation and foreshadow costly discovery disputes concerning the reasonable nature of the request and proportionality of the response.  It is only a matter of time until the Court is called upon to answer these questions and expand the body of case law interpreting the Act.

The above-referenced case is Henson, et al. v. Santander Consumer USA Inc., No. 16-349, 582 U.S. ______(2017).